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Sunday, June 26, 2022

DraftKings Reports Higher Revenue, Costs as It Bets on Growth

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With more states on the path to legalizing sports gambling,

DraftKings Inc.


DKNG -5.93%

is betting that a big investment in marketing will yield outsize customer growth as the pastime goes mainstream.

The Boston-based sports betting platform on Friday posted big year-over-year gains in its revenue and user base, benefiting from the rollout of its platform in more states. The gains, however, came with significantly higher expenses as DraftKings spent more on marketing, leading to a wider loss.

DraftKings executives said the higher marketing spending was important to raising customers’ awareness of the platform as sports betting becomes legal in more places. DraftKings’ loss will likely grow even steeper in the summer months, Chief Financial Officer

Jason Park

said, as the company opens full-season football betting in three new states.

“The net effect is that we continue to expect to spend significantly more on sales and marketing in 2021 compared to 2020,” Mr. Park said.

In the first three months of the year, DraftKings’ active monthly paid users more than doubled to 1.5 million compared with a year earlier. Average revenue per monthly user rose by 49%, boosting the company’s total revenue to $312.3 million, from $113.4 million a year earlier.

At the same time, sales and marketing costs quadrupled year over year to $228.7 million. General and administrative expenses also rose, shooting up to $169 million, from $39.1 million a year earlier.

As a result, the company’s quarterly loss steepened. Stripping out one-time items, its adjusted loss before interest, taxes, depreciation and amortization was $139.3 million, compared with $51.6 million a year earlier. Shares fell 0.7% to $51.51 Friday morning.

The company’s user growth has ridden the tide of an expanding market amid a seismic shift in how sports betting is regulated nationwide. The U.S. Supreme Court kick-started the wave of state sports-betting legalizations in 2018, when it ruled for New Jersey in a case that invalidated federal prohibitions on such activity.

Thanks to recent legalizations, DraftKings launched mobile sports betting in Michigan and Virginia in the first quarter of the year. Those new markets were part of the rationale DraftKings cited Friday in raising its full-year guidance, forecasting revenue of $1.05 billion to $1.15 billion in 2021.

In April, New York became one of the latest states to pass a plan to legalize mobile sports betting, aiming to select two companies through a bidding process later this year to operate online betting in the state.

“We’re going to wait and see when the [request for proposals] comes out, what it looks like, and we’re going to put our best foot forward,” CEO

Jason Robins

told analysts Friday.

The move by New York is an example of how competitive pressures among states—as well as depressed tax revenue because of the coronavirus pandemic—are leading more state legislatures to opt for legalized sports gambling.

Since the Supreme Court’s 2018 ruling, more than half of states have legalized sports gambling. New York legislators cited losing out on revenue to nearby states as part of the rationale for its legalization.

“We believe the outlook for further legalization is very promising,” Mr. Robins said.

As the legal landscape shifts, one avenue for more user engagement has been partnerships with sports leagues that until recently eschewed associations with gambling. Increasingly, leagues and team owners have viewed gambling as a way to boost fan interest.

“The recent legalization of mobile sports gaming in New York presents a meaningful opportunity for fan engagement, sponsorship and the value of our teams,”

Andrew Lustgarten,

chief executive of Madison Square Garden Sports Corp., said this week in prepared remarks as the company reported its earnings for the latest quarter. MSG Sports owns the New York Knicks and the New York Rangers.

DraftKings has become a sports-betting partner of the National Football League, an agreement that will let it integrate sports-betting content into the NFL’s website and app. It also recently expanded a deal with golf’s PGA Tour, with plans to operate an on-site betting facility at TPC Scottsdale, a prominent Arizona golf complex.

Write to Matt Grossman at matt.grossman@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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